Arete Asset Management

After a long period of disinflation and trending markets, emerging signs of inflation threaten to upend a lot of investment playbooks.

The trouble with bubbles is they prey on human weakness. They are also high impact investment events.

Passive investing continues to gain share at the expense of active. In doing so, however, it is also substantially increasing systemic risk.

After an extremely eventful first half of the year, the key to managing through is understanding what has happened and why.

The turbulence in the first quarter was more than just a nasty selloff. It represented a fundamental change in the market landscape that will favor perspective and preparation like never before.

With markets continuing their upward trajectory, it is easy to assume central banks are in control and things are going well. Some insights from how people interact with their environment in traffic reveal a very different perspective, however.

Several rumblings in the quarter raised concerns about an imminent market crash. Another distinctive possibility is that the bubble of "airy promises" and overly optimistic growth expectations is bursting.

The story of the first half of 2019 was the Fed reversing its position on raising rates. The gig of short-term fixes is almost up though and now is the time for investors to consider the longer-term implications for monetary policy.

The increasing presence of opposite extremes makes the investment environment far more uncertain. It also means investors will have to work harder to meet their goals.

The return of volatility in the fourth quarter should not be overlooked. The landscape has changed which will create opportunities for alert investors and downside risk for others.

Investors who view market opportunities exclusively through the lens of recent strong economic performance risk misreading a pivotal event. The tide of liquidity is turning and will bring asset prices down with it.

Market twists and turns can cause anxiety but it is several unsustainable trends that pose a greater risk. As a result, it makes sense for long term investors to seriously consider exactly what they are trying to accomplish and what they need to prepare for throughout their investment horizon.

The complexion of the market changed in the first quarter as volatility spiked. Now is the time for investors to be very clear about what they get in return for committing capital to risky investments.

Although there are many superficial reasons to be enthusiastic that strong market performance can continue, most positives are overstated and many risks are underappreciated. In fact, today's investment environment entails such a high degree of uncertainty that most investors would be best served by simply minimizing their worst case scenario.

The widespread indifference to risk in the markets strongly suggests something is wrong. That something is “bad promises” and it has significant and widespread implications for investors.

After a long period of “riding the wave” of central bank liquidity, investors are now confronted with much more difficult decisions. Andrew Lo’s new book, Adapative Markets, provides an excellent framework from which to analyze the current situation, evaluate market risks and prepare for changes.

The persistence of exceptionally low volatility has created a perception that it will be “smooth sailing” for stocks. Evidence suggests just the opposite, however; now is the time to focus on protection.

The good news is that economic problems are fixable. The bad news is that they need to be properly diagnosed and treated first. Investors need to handicap the degree to which this will happen.

An investment landscape of increasingly binary outcomes requires fundamentally different involvement by investors. Importantly, those taking their cues primarily from the US economy are likely to be woefully unprepared.

One of the key insights revealed by the presidential election is that there has been a significant gap between perception and reality in regards to a number of economic issues. Resolution of these issues is likely to be messy and involve change that will affect investors in many ways.

It is easy to overlook public pension plans as a serious investment risk but the reality is that the level of underfunding is a threat to everyone’s financial health.

Weakening productivity growth poses serious risks to the economy and, by association, to stocks. One key piece to the puzzle is that productivity growth requires not just technological change, but also the diffusion of that change across the economy.